Stricter and more ambitious climate goals are pushing city authorities to probe new ways of securing a green power supply
PUBLIC OFFICE
Public bodies own significant shares of building stock including energy-intensive institutions such as hospitals and schools
PPA SIMPLICITY
Work is underway to make the complex world of PPAs more accessible to public bodies and smaller private companies
KEY QUOTE
As cities become aware of PPAs and see that they are able to do it, then you will start to see more of it
Particularly in North America, the corporate world has been an enthusiastic signatory of commercial power purchase agreements (PPAs) as an alternative to buying electricity from the default utility provider at whatever price it demands. Large multi nationals and, increasingly, smaller companies have instead penned long-term deals under PPAs, particularly with renewable energy producers who are able to offer a fixed price for years ahead. Technology giants such as Google and Microsoft are responsible for bringing several gigawatts of clean energy capacity online worldwide as part of business strategies to guarantee zero-carbon power for massive data centres and central headquarters, burnishing their environmental credentials in the process. But city and other public sector authorities have been slower to see the merits of PPAs and for various reasons have either not been able or have been unwilling to broker agreements. Some cities are still to be convinced that PPAs are the way forward. A substantial chunk of their decarbonisation potential is being left untapped. More than 14% of the European Union’s gross domestic product (GDP) is made up of public authority purchasing power while public buildings account for 10% of the EU’s building stock, which includes energy-hungry institutions such as hospitals and schools. Given that 40% of the bloc’s power demand comes from buildings, there is a lot that renewable generation can do to scrub emissions if they are given a guaranteed avenue into the public energy mix. PPAs are power offtake agreements between an energy producer and a consumer or trader, which typically either guarantee a direct supply of green electricity to a specific site or the exchange of electrons that have been tagged with a green label. 
TRAILBLAZERS In Europe, examples of a city or public authorities penning PPAs are thin on the ground but a notable exception is the City of London. In 2020, it brokered an agreement to buy all of the electricity produced by a 49 megawatt (MW) new-build solar power plant in Dorset, southwest UK. The PPA is worth £40 million, will last 15 years and could save the city an estimated £3 million in energy costs, satisfying half of the governing authority’s power demands over its lifetime. Construction began in July and the plant is due to come online in 2022. “It means [local authorities] can play their part in reducing emissions without the risks of owning their own energy firms or infrastructure and without the need for government funding,” says James de Sausmarez, chairman of the City of London Corporation’s Corporate Asset Sub Committee, which reviews the performance of city-owned property. A procurement process has also started for further PPAs that will be used to power the entire of London’s transport network with renewables. The plan is to sign an initial agreement that will cover 10% of the public transport operator’s 1.6 terawatt-hours annual power demand, as of spring 2022. According to Transport for London (TfL), a second PPA covering another 10% of its electricity consumption would be designed to guarantee the clean energy would be sourced from new-build renewables capacity, acting as a job creator for the UK economy. “By agreeing in 10% blocks, TfL can also benefit through being able to learn and adapt as the renewable market evolves,” it says. TfL aims to go carbon neutral by 2030. In the Netherlands, the Dutch government’s Directorate-General for Public Works and Water Management signed a PPA in March 2021 for the output from 22 wind turbines that will provide the publicly-owned Port of Rotterdam with 400 gigawatt-hours of power every year. More contracts are on the cards as the harbour continues its metamorphosis into a clean energy hub and the Dutch government scrambles to find emission cuts as part of a court-ordered acceleration of climate policy. 
PPA MIA Public bodies are in a strong position to back PPAs for green power given they often have access to large areas of land that can be used to build renewables production sites—allowing for either offtake agreements with third parties or the more expensive option of owning the renewables production infrastructure themselves. Meanwhile, lenders are more likely to feel secure in signing off on financing for public organisations. Although green PPAs still lag behind other corporate power purchase deals, increased uptake could be driven by ever-stricter climate goals and more awareness about the opportunity these deals offer. “With more cities pledging to become climate neutral, there are sure to be more PPAs signed between local authorities and renewable power producers,” says Mercè Labordena from trade group SolarPower Europe. Solar is particularly well-placed to take advantage if cities crack the green PPA nut, as public building rooftops are prime spots for panels. SolarPower Europe claims that 90% of rooftops across the EU are unutilised. At least 100 cities will be climate neutral by 2030, according to a sustainability strategy published by the European Commission in 2020 and an ongoing EU mission to demonstrate those urban transitions could act as a template for others to follow suit. “PPAs are still largely unchartered territory among city administrations,” says Alix Bolle from Energy Cities, a network representing 1000 European cities. “This is likely due to legal cautiousness around competition principles and the difficulty to implement such a disruptive mechanism in the business-as-usual way of procuring energy, based on long-standing habits and mechanisms,” Bolle adds. “Every day, cities are keener to support citizen energy communities and PPAs could, in our view, be a solution to provide new market entry points to these entities,” she says. 
NATIONAL PLANS National governments are obligated to ratchet up their green efforts over the course of the decade and EU members have to show their work by submitting National Energy and Climate Plans (NECPs) to the European Commission for scrutiny. These strategies help calculate EU-wide targets and make suggestions about where progress can be made. Green PPAs are featuring more and more in these plans. According to data provided by the RE-Source platform, an industry-led initiative to promote the use of PPAs, Spain has contracted the most renewable energy via PPAs of any European country, earmarked tax incentives for more agreements and discussed extra support for new public contracts as part of the government’s NECP. Italy, which lags behind Spain in PPA uptake, wants 15% of electricity to be sourced from clean energy agreements by 2030 and is designing its own incentive system as well. Other member states have also included measures aimed at derisking credit and financing of PPA projects in their climate plans, all of which should make them more attractive to both the public and private sectors if implemented.
BUYER SUPPORT The labyrinthine world of public procurement is one of the major obstacles organisers of PPAs have had to contend with as extra steps such as competitive procedures, which corporates can bypass, add an extra layer of complexity to what is already a complicated issue. However, a combination of factors means that procurement is starting to become more of a facilitator than an inhibitor to clean energy scale-up in the public sector, including an increase in administrative guidance. The UK government’s Crown Commercial Service, which supports procurement activities for public bodies, issued in-depth advice that explains exactly what PPAs are and how the agency can help public sector buyers launch procurement processes. PPAs are, by design, complex financial instruments that need active management in order to protect their value against energy market fluctuations. To help smaller firms in particular deal with that burden, a standardised agreement template is available. The European Federation of Energy Traders and the RE-Source Platform designed a toolkit that can be used across borders in Europe by corporate buyers, which brings down transaction costs and speeds up negotiations between involved parties. 
UNKNOWN QUANTITY Bruce Douglas from electricity industry group Eurelectric acknowledges: “Corporates are much faster moving and have ESG [Environmental, social and corporate governance] and CSR [Corporate social responsibility] concerns, whereas, for public authorities, that is less prominent. But as cities become aware of PPAs and see that they are able to do it, then you will start to see more of it. It’s very early days but this will be critical for cities and public institutions in general to meet their climate targets,” Douglas says. “Corporate-sourcing growth has increased and we envisage that the trend will follow for cities and public authorities too,” he adds. Procurement expert Ian Makgill says the reluctance on the part of cities to source PPAs could be because of a lack of understanding. “But most likely it will be because there’s an existing contract in place and they can’t adopt an alternative until the old contracts expire.” The volatile nature of the energy markets, neatly illustrated by the uncertainties caused by fossil gas shortages in Autumn 2021, may play on the minds of procurement officials when the clock starts ticking on their energy contracts.
GREEN STANDARDS At EU level, the Green Public Procurement (GPP) programme is a voluntary initiative managed by the European Commission, which sets green criteria for a whole host of products and services that the public sector is likely to buy or consume. GPP standards range from digital products and textiles to data centres and catering services. According to Commission sources, the EU executive is looking into making some of those standards mandatory. “The challenge of furthering take-up by more public sector bodies so that GPP becomes common practice still remains. As does the challenge of ensuring that green purchasing requirements are somewhat compatible between member states,” the Commission acknowledges. Gaps remain though. The Commission asked national governments as long ago as 2003 to draw up green procurement action plans to help streamline the process. Estonia, Hungary, Luxembourg and Romania are still yet to submit one for approval.
BRUSSELS STEPS IN EU regulations are trying to boost the uptake of green PPAs, either directly or indirectly. The European Commission considers the “rapidly growing” PPA market to be “a complementary route to the market of renewable power generation”. However, the EU’s executive branch also accepts the market, “Is still limited to a small number of member states and large companies, with significant administrative, technical and financial barriers remaining in large parts of the union’s market.” To address those problems, the EU’s new Fit-for-55 package of climate ambition for the next decade, published in July 2021, contains several proposals that may increase PPA uptake if they are implemented by national governments. The most visible of those proposals is the update to the renewable energy target for 2030, which is set to be ratcheted up to 40%. A more ambitious goal means more demand for green electrons. There are also more nuanced changes on the negotiating table. The Commission wants to explore the possibility of using credit guarantees, possibly at an EU level, to de-risk PPAs. Officials still need to work out how to do this without crowding out private investments. Perhaps most significantly, the updated legislation would obligate national governments to report clearly how much renewable capacity is provided via all types of PPAs, when they submit their NECPs and long-term climate plans. The Commission also wants to issue more guidance and recommendations on PPAs in 2024. However, the Commission does not have a green PPA to cover its own electricity consumption and instead relies on three-year-long contracts with energy providers that allow the EU executive to purchase renewables guarantees of origin. As a result, its buildings are powered by an energy mix that is for accounting purposes sourced from hydro and topped up with wind and solar. A limited amount of self-generated solar from rooftop panels is also used by the institution. Eurelectric’s Bruce Douglas suggests that “leadership comes from the top, from the Commission” and that maybe the EU executive could start practising what it preaches as the Green Deal starts to accelerate. 
Rotterdam & London
Public-owned bodies are looking at PPAs to secure a clean energy supply for their operations
CARBON BUDGET Another possible factor that could spur city authority interest in PPAs is the concept of a diminishing carbon budget. The EU is set to implement such a budget from 2030 onwards but some cities are already using such climate accountancy to set policies. Oslo was the first major city to establish a carbon budget back in 2017 and its annual cap on emissions has massively influenced policies, especially in the transport sector. Manchester and Vienna are also notable examples. C40 believes Oslo’s green bookkeeping is working because emissions are declining despite it being one of the fastest-growing cities in Europe.
ON THE MOVE Transport is often the most substantial contributor to urban emissions and e-mobility is quickly establishing itself as one of the main weapons in the environmental arsenals of city authorities. However, for private transport, city-led PPAs may not be able to play as much of a role in the transition because most electric vehicle charging stations are not publicly owned and often do not require the large power capacity that a new-build renewables site, such as the one commissioned by the City of London, would provide. Additionally, Geert Decock, a power expert with clean mobility group Transport & Environment, points out that most private charging companies typically rely on guarantees of origin certificates to offer renewable energy to customers. While electric vehicle charging may not be able to benefit from renewables PPAs, such deals could be used to help support the burgeoning Power-to-X sector. PPAs may be used to link additional renewable power with electrolysers to produce green hydrogen. “We see PPAs playing more of a role in the non-road transport sector to produce ammonia or hydrogen for ships or e-kerosene for planes,” Decock explains.•
TEXT Sam Morgan
PHOTO
Simone Hutsch & Valdemars Magone